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1984 Committee Report: the Employment Retirement Income

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1984 Committee Report: the Employment Retirement Income 98th 98hCnrsCongress COMMITTEE PRINT I S.98-221PRT. THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974: THE FIRST DECADE AN INFORMATION PAPER PREPARED FOR USE BY THE SPECIAL COMMITTEE ON AGING UNITED STATES SENATE AUGUST 1984 This document has been printed for information purposes. It does not offer findings or recommendations by this committee U.S. GOVERNMENT PRINTING OFFICE 37-569 0 WASHINGTON: 1984 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 SPECIAL COMMITTEE ON AGING JOHN HEINZ, Pennsylvania, Chairman PETE V. DOMENICI, New Mexico JOHN GLENN, Ohio CHARLES H. PERCY, Illinois LAWTON CHILES, Florida NANCY LANDON KASSEBAUM, Kansas JOHN MELCHER, Montana WILLIAM S. COHEN, Maine DAVID PRYOR, Arkansas LARRY PRESSLER, South Dakota BILL BRADLEY, New Jersey CHARLES E. GRASSLEY, Iowa QUENTIN N. BURDICK, North Dakota PETE WILSON, California CHRISTOPHER J. DODD, Connecticut JOHN W. WARNER, Virginia J. BENNETT JOHNSTON, Louisiana DANIEL J. EVANS, Washington JEFF BINGAMAN, New Mexico JOHN C. RoTHER, Staff Director and Chief Counsel STEPHEN MCCONNELL, Deputy Staff Director DIANE LIFSEY, Minority Staff Director RoIN L. KROPF, Chief Clerk (II) PREFACE Ten years ago, the Employee Retirement Income Security Act of 1974 [ERISA] was passed by the Congress (Public Law 93-406), with the protection of the pension and welfare benefit rights of workers and their beneficiaries as its goal. Pensions had developed many years earlier, of course, but the enactment of ERISA marked the growing importance of private pensions in the retirement income equation. The Senate Special Committee on Aging, as the oversight com- mittee charged with the broad mandate to assess the adequacy and security of all retirement income policy and programs is pleased to mark the anniversary of ERISA with this comprehensive assess- ment of its accomplishments and the job that still remains. The first pension plans developed in the latter part of the 19th century in this country. Still, by 1910 there were no more than 100 private plans in the United States, including a few established by labor unions. Spurred by a burst of pension plan formation follow- ing the Second World War, the private pension system now covers approximately 50 million nonagricultural wage and salary workers, about 51 percent of the work force. As the first cohort of employees to enjoy this expanding pension coverage grows older, and the pri- vate pension system matures, increasing numbers of Americans expect to receive some form of employer-provided retirement bene- fit. In order to insure that these expectations would be fulfilled, ERISA prescribes minimum standards of participation, vesting, and plan funding, reporting and disclosure requirements, and standards of fiduciary responsibility. Together with the creation of plan ter- mination insurance, these provisions represented a significant step toward guaranteeing the pension promise made to employees par- ticipating in private pension plans. This year marks the 10th anniversary of the enactment of ERISA, but it also marks the transformation of tax-qualified pri- vate pensions into vehicles designed to provide retirement income for employees at all income levels, especially those who might oth- erwise have to rely solely on Social Security for their retirement income. It is therefore an ideal time to applaud its successes as well to assess its failures. The purpose of this committee print is fourfold: To recall the circumstances surrounding ERISA's passage and the goals which Congress hoped to achieve; to examine our ex- perience with ERISA enforcement and subsequent enactments; to examine the impact which ERISA has had on the universe of pri- vate pension and employer-provided retirement plans; and to raise some of the major questions concerning pension policy which remain today. The print is a compendium of seven independent essays, each providing a different perspective on ERISA. (III) We would like to gratefully acknowledge the support of the Sun Co. in the preparation of this document. The first chapter, written by Michael Gordon, former pension counsel to Senator Jacob Javits and currently a partner in the law firm of Mittelman and Gordon, gives an insider's view of the causes of and circumstances surrounding the enactment of ERISA. He re- calls the crucial role that Senator Javits, often styled the "father of ERISA," played in bringing the need for pension legislation to the attention of Congress and in shaping the form that ERISA eventu- ally assumed. In the second essay, Dr. Thomas Woodruff, former Executive Di- rector of the President's Commission on Pension Policy, and cur- rently the executive director of the Commission on College Retire- ment, examines in detail the goals which Congress sought to achieve through the enactment of ERISA. He considers both what ERISA did and did not attempt to accomplish, focusing on the sub- sequent experience of plan participants. In chapter 3, authored by Dr. Dan McGill, chairman and re- search director of the Pension Research Council, Wharton School of the University of Pennsylvania, legislation passed since the enact- ment of ERISA is summarized and its most important elements dis- cussed. The chapter folows this legislation chronologically, draw- ing out of the enormous complexity of recent pension legislation the trends in congressional interest and activity as legislators have sought to fill the gaps left by ERISA, and expand its scope where possible. In the fourth chapter, Dr. Beverly Klimkowsky, a public policy consultant specializing in retirement income issues, evaluates the implementation of ERISA regulation in the executive branch. Dr. Klimkowsky, whose dissertation entitled "Assessing ERISA Amid Changing Expectations," reviewed in detail the problems encoun- tered by the Department of Labor, Internal Revenue Service, and Pension Benefit Guaranty Corporation in translating the mandate of ERISA into effective agency regulation and enforcement, here distills the experiences and reaction of members of the administra- tion and the pension community to the massive task faced by these agencies when ERISA became law. She concludes with the observa- tion that, given the incredible obstacles to effective implementation created by the size and scope of ERISA, the fact that the three agencies are able to administer it at all is a significant accomplish- ment. The fifth essay, prepared by Dallas Salisbury, president of the Employee Benefit Research Institute, considers the impact that ERISA has had on the growth and composition of the private pen- sion universe. The development of a cohesive pension policy has to some degree been hampered by the lack of complete, current infor- mation; this chapter examines the most recent survey data and draws some tentative conclusions. Many factors affect pension plan formation, including the economy, employee preferences, and tax incentives. Although it is difficult to separate the impact of ERISA from these other factors, identifiable trends have emerged which the author notes and discusses. In the sixth chapter, Donald Grubbs, an actuary employed by George B. Buck Consulting Actuaries, Inc., and a frequent source of technical analysis at congressional hearings, presents in a very concise manner the broad spectrum of pension issues still actively debated 10 years after ERISA's passage. His paper runs the gamut of current pension issues and controversy, and describes the argu- ments presented by advocates and critics of proposals concerning ERISA minimum standards, the burdens of Federal regulation, and emerging issues-many of which were never anticipated by the drafters of ERISA. The seventh and final chapter differs in its style and objective from the preceding six. Written by Alicia Munnell, senior vice president and director of research for the Federal Reserve Bank of Boston, the paper diverges from the largely retrospective nature of the first six essays to present the current pension policy debates. This chapter presents one view of some of the major themes in pen- sion and related policies and should serve as a departure point for a continuing dialog between Congress and the pension community about the implications of ERISA for tax, employment, investment, and retirement income policies. Private pensions are a critically important part of a larger retire- ment income system. On the tenth anniversary of ERISA's enact- ment, it is fitting that we assess whether we have made good our commitment to make sure that the pension promise is kept for the millions of Americans who will one day retire from active employ- ment. The authors of this committee print review the accomplish- ments of the last decade, setting the stage for the committee's prin- cipal celebration of this anniversary: the ERISA 10th Anniversary Conference on September 11, an opportunity for the Congress to discuss our agenda for retirement income in the next decade. JOHN HEINZ, Chairman. JOHN GLENN, Ranking Minority Member. CONTENTS Page P reface .............................................................................................................................. III Chapter 1. Overview: Why was ERISA enacted?: A . Introduction ......................................................................................................... 1 B. A capsule history of private pension plan growth.................... 2 C. Prolog to ERISA-the Welfare and Pension Plans Disclosure Act and the President's Cabinet Committee Report of 1965 ..................................
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